Purchasing and Procurement Ethics, Gifts & Gratuities

Purchasing and procurement ethics are one of the many procurement best practices that world class organization use in their procurement policies. The trouble with procurement ethics is that when such purchasing ethics are not clearly defined, a simple and customary gift giving can accidentally lead into fraud and corruption.

Below you’ll find a discussion on procurement ethics standards, gifts and gratuities as part of ethics and a sample policy or clause that you can use.

Standards of Ethical Procurement!

According to ISM*, the 3 procurement ethics principles are:

Integrity in Decisions and Actions
Value for Your Employer
Loyalty to Your Profession

ISM further introduces 10 standards* for an ethical procurement conduct. While some conducts are pretty obvious that are unethical (accepting a holiday package from your supplier), there are cases where perception can cause a situation to be deemed unethical.

For example while companies may allow casual lunches given by suppliers as ethical, if the buyer has monthly (or worse weekly) lunches with the supplier then there’s a perception that this may be unethical. Actually this may or may not be unethical, but the important point is that it creates the perception as being unethical.

Procurement Ethics, Gifts & Gratuities

A Procurement ethics policy regarding gifts and gratuities is usually drafted by any organization that aspires to be world class in procurement.

Generally companies provide that employees cannot accept gifts and gratuities from suppliers. At the same time these companies provide exceptions to this. Here’s a sample procurement ethics policy regarding gifts and gratuities:

As a matter of company principle …. employees cannot accept gifts and gratuities. The Company understands, however that small token of goodwill may be exchanged between us and our suppliers on special occasions. Gifts like these can be accepted provided they do not exceed A$100/NZ$100/R’s750 in value or result in personal gain for the receiver, or favourable treatment for the giver if they are someone from whom we buy, sell or receive goods and services.**

Here’s another gifts and gratuities policy from one of the leading companies in the world:

Gifts & Gratuities: GE policy prohibits GE employees from soliciting or accepting gifts or gratuities from suppliers. It is our expectation, and suppliers are asked, that gifts or gratuities not be offered or sent to any employee of GE. Gifts and gratuities include, but are not limited to, cash, tickets to events, entertainment generally, paid vacations (even if connected to a supplier site visit or training program), electronic equipment, liquor, food, golf, and other items of value. GE further prohibits its employees from engaging in any business-related activity in any adult entertainment clubs or similar establishments regardless of who is paying. However, GE does understand that reasonable business meals included in the agenda of (or which immediately precede or follow) a business meeting may be acceptable. However, such meals may not be lavish or frequent.

In case you did not notice, while both policies above are regarding gifts and gratuities, the first is addressed to employees of the company whereas the second to the suppliers.

The key then when dealing with procurement ethics policy is that they are communicated to all stakeholders: Buyers and everyone else in the company as well as suppliers.